XOP Flat, USO Up in the Week Ended October 30



Different approaches to crude oil

As we noted in the previous part of this series, WTI (West Texas Intermediate) crude oil futures rose ~4.5% in the week ended October 30, 2015, compared to the previous week ended October 23. Although retail investors don’t have easy access to the futures market, they can access other potentially safer, low-cost avenues to bet on WTI crude oil prices.

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The first option would be an energy commodity ETF such as the United States Oil ETF (USO). The ETF tracks prompt WTI crude oil futures. Its shares trade on the NYSE (New York Stock Exchange) like company stock. The fund rose ~3.8% in the week ended October 30, 2015.

The second option would be the SPDR S&P Oil & Gas Exploration & Production ETF (XOP). XOP’s indirect exposure to crude oil prices through energy stocks should give it better downside protection from a fall in crude oil prices relative to USO. It’s also a more diversified option for investors. However, given the fund’s equal-weight holdings, many smaller, more volatile companies have an impact on its performance.

XOP rose 0.1% in the week ended October 30, 2015.

Comparing performances

As you can see in the above graph, USO was mirroring WTI crude oil futures at the beginning of the week, but it started underperforming WTI slightly by the end of the week. It delivered lower returns compared to WTI crude oil and higher returns compared to XOP by the end of the weekly cycle.

XOP was underperforming both WTI and USO throughout the week ended October 30. It gave the lowest returns among the three by the end of the weekly cycle.

Key companies held by XOP include Chevron (CVX), ConocoPhillips (COP), and Apache (APA). They account for ~4% of XOP.

Investors can also gain indirect exposure to energy prices, and potentially steady income, by investing in MLP ETFs such as the Alerian MLP ETF (AMLP). AMLP holds midstream MLPs such as MarkWest Energy Partners (MWE).

In the next part of this series, we’ll look at trends in the WTI-Brent spread.


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